Does internationalisation increase exchange rate exposure? -Evidence from Chinese financial firms

Cuestas, Juan Carlos; Huang, Ying Sophie; Tang, Bo

doi:10.1016/j.irfa.2018.01.013

Cited by 11 publications

(11 citation statements)

References 45 publications

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“…On the contrary, the exchange rate has a negative impact on the long term economic growth. The results of this study do not disagree with the previous research of Cuestas (2018), who states that there is no direct link between the exchange rate and the long term economic growth. The second step was to examine the results of the DOLS test.…”

Section: Fmols and Dols Test Resultscontrasting

confidence: 82%

The Relationship between International Trade and Economic Growth

Purnama¹,

Yao²

2019

IJABR

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The aim of this study is to find the relationship between international trade and economic growth in ASEAN countries. Three independent variables used to measure the economic growth include international trade, the exchange rate, and foreign direct investment. This study employs a pedroni panel cointegration test to examine the data from 2004 to 2015. The results show that there is a long term cointegrated relationship between international trade and economic growth in the ASEAN countries. International trade and foreign direct investment also have a long term, positive impact on economic growth. Meanwhile, the exchange rate also has a long term, negative influence on the economic growth. In addition, there is an indirect relationship and bidirectional causalities between the GDP and international trade, as well as between the GDP and the exchange rate. On the other hand, there is a direct relationship and a bidirectional causality between international trade and the exchange rate. The FDI leads GDP, international trade, and exchange rates. Our results suggest that international trade must be supported by government policies that aim to enhance the financing of new investment for economic growth.

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Section: Fmols and Dols Test Resultscontrasting

confidence: 82%

The Relationship between International Trade and Economic Growth

Purnama¹,

Yao²

2019

IJABR

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“…Their argument is consistent with the definition of forex exposure itself that specified the relationship between cash flow and foreign exchange (Bacha et al 2013;Jeon et al 2017). There are a few past studies that used cash flow indicators, Ameer (2010), Bartram (2008), Cuestas et al (2018) and Wahyudi et al (2019). Bartram (2008) highlighted how operational cash flows, investment cash flows, and financing cash flows, individually and total cash flows have significant relationships with forex exposure.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Similar to Ameer (2010), Wahyudi et al (2019) used a general cash flow volatility which is measured by the standard deviation. Other than that, Cuestas et al (2018) also used cash flow indicator, which is in the form of a ratio to total assets. Only Ameer (2010) showed cash flow to be an insignificant indicator for forex exposure, while the other two studies (Cuestas et al 2018 andWahyudi et al 2019) proved a significant result.…”

Section: G a L L E Y P R O O Fmentioning

confidence: 99%

“…Other than that, Cuestas et al (2018) also used cash flow indicator, which is in the form of a ratio to total assets. Only Ameer (2010) showed cash flow to be an insignificant indicator for forex exposure, while the other two studies (Cuestas et al 2018 andWahyudi et al 2019) proved a significant result. Previous studies used a general cash flow which means it is not limited to only cash flows that are denominated by foreign currency.…”

Section: G a L L E Y P R O O Fmentioning

confidence: 99%

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Impact of Foreign Exchange Exposure and Shariah-compliant Status on Malaysian Firms’ Hedging Practice

Wahab¹,

Abdul-Rahim²,

Janor³

2020

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This study investigates the impact of foreign exchange (forex) exposure and Shariah-compliant status on firms' decision to practise hedging. It employs panel multiple and multinomial logistic regression on 702 firm-year observations from 117 non-financial listed firms over the period from 2010 to 2015. The sample consists of 70% Shariah-compliant firms, representative of the 74%-85% Shariah-compliant firms listed on Bursa Malaysia during the study period. From the multinomial logistic regression, this study finds total and net foreign currency exposures are significant in predicting hedging for firms that practice one and two hedging instruments. Moreover, the results also reveal that Shariah-compliant status always significantly and directly influence firms that hedge, except for firms that use four hedging instruments. This study contributes to the literature by introducing direct measurements of foreign currency exposure which prove to be significant indicators of forex exposure. Accurate measurement of forex exposure is crucial as it has implications on the firms' ability to predict its cash flows, commit to future projects, and subsequently, increase its value. Since firms do not disclose whether the instruments used are conventional or Shariah-compliant, this study assumes that all instruments are conventional and therefore, being Shariah-compliant hinder the firms from practising hedging. However, the results reveal those firms that hedge are indeed Shariah-compliant. This finding should raise a great concern among the Islamic capital market regulators to require stricter rules and greater transparency among Shariah-compliant firms.

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“…This is evidenced in the case of the euro-dollar rate and two composite European stock market indices (Kollias and Paleologou, 2012), as well as the case of UK and Norway ( Kollias and Siriopoulos, 2016). Regarding the Chinese financial market, the main findings of the existing studies reveal that foreign capital share returns in the Chinese stock market are not entirely segmented from global financial conditions (Bailey, 1994); there exists bidirectional volatility spillovers between stock prices and exchange rates (Zhao, 2010;Cuestas et al, 2018); asymmetric causal relationship running from exchange rates to A-share returns (Nieh and Yau, 2010). The disparities among these studies could be the application of different samples and econometric strategies.…”

Section: Introductionmentioning

confidence: 99%

A Markov switching SVAR analysis on the relationship between exchange rate changes and stock returns in China

Cuestas

Tang

2020

IJOEM

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PurposeThis study investigates the spillover effects between exchange rate changes and stock returns in China. The authors find that no significant interconnections exist between stock returns and exchange rates changes.Design/methodology/approachAlthough the conventional structural VAR (SVAR) approach fails to examine the contemporaneous effects, the Markov switching SVAR model captures the volatile structure of the Chinese financial market. The regime-switching estimates indicate that volatile structure tends to be significant during two financial crisis periods.FindingsNotwithstanding the fact that exchange rate changes cannot Granger-cause stock returns in the long run, its contemporaneous spillover effects on stock returns are found to be statistically significant.Originality/valueThis study aims to shed light on the spillover effects between exchange rate changes and stock returns in China, as the Chinese currency is becoming flexible and China’s stock market has undertaken important reforms. The spillovers between the two markets are of topical importance due to the increasing connections between China and the global economy.

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Does internationalisation increase exchange rate exposure? -Evidence from Chinese financial firms

Cited by 11 publications

References 45 publications

The Relationship between International Trade and Economic Growth

The Relationship between International Trade and Economic Growth

Impact of Foreign Exchange Exposure and Shariah-compliant Status on Malaysian Firms’ Hedging Practice

A Markov switching SVAR analysis on the relationship between exchange rate changes and stock returns in China

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